DBRS Morningstar Downgrades Rating on One Class of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17

DBRS, Inc. (DBRS Morningstar) downgraded its rating on one class of the Commercial Mortgage Pass-Through Certificates, Series 2014-C17 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17 as follows:

-- Class E to B (low) (sf) from B (sf)

In addition, DBRS Morningstar confirmed its ratings on the following classes:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-B at A (sf)
-- Class D at BBB (low) (sf)
-- Class PST at A (low) (sf)
-- Class F at CCC (sf)

Negative trends for Classes D and E remain in place, while all other trends are Stable. Class F does not have a trend given its CCC (sf) rating.

The downgrade and Negative trends reflect DBRS Morningstar’s increased loss projections primarily driven by the Holiday Inn Houston Intercontinental loan (Prospectus ID#17, 2.7% of the trust balance). In addition, credit support to the bonds has deteriorated since the last rating action following the liquidation of Keystone Park (Prospectus ID#16) in August 2021, which resulted in a $3.0 million realized loss that was contained in the non-rated Class G.

At issuance, the trust consisted of 67 fixed-rate loans secured by 72 commercial properties with a trust balance of $1.04 billion. Per the January 2022 remittance, 54 loans secured by 56 properties remain in the trust with a trust balance of $697.6 million, representing a 32.7% collateral reduction since issuance. The trust is concentrated by loans secured by retail and hospitality properties, which account for 41.6% of the trust balance and 28.4% of the trust balance, respectively. Seven loans, totaling 15.4% of the trust balance, are full term interest-only (IO) loans.

Per the January 2022 remittance, five loans, representing 11.0% of the trust balance, are in special servicing and an additional 11 loans, totaling 34.3% of the trust balance, are on the servicer’s watchlist. The largest specially serviced loan, San Isidro Plaza I & II (Prospectus ID#5, 5.8% of the trust balance), is expected to pay off in full with no loss to the trust. Most of the watchlisted loans are secured by hotel and retail loans that were affected by the Coronavirus Disease (COVID-19) pandemic.

Holiday Inn Houston Intercontinental Hotel is secured by a full-service hotel in Houston. The loan was transferred to the special servicer in March 2017 for imminent default, with a receiver appointed in August 2017. The property has been real estate owned since July 2018 and was most recently reappraised at $20.9 million as of July 2021. The property is currently listed for sale and the special servicer is evaluating an offer. A $15.0 million ($36,000 per key) property improvement plan was completed February 2020. The property continues to significantly underperform compared with issuance expectations with negative net cash flows through June 2021.

The Arrowhead Professional Park loan (Prospectus ID#33, 1.3% of the trust balance) is secured by a two-story medical office property in Glendale, Arizona. The project was partially built-to-suit for the former largest tenant, Arrowhead Health Center (Arrowhead), to use as its headquarters. Arrowhead, which previously occupied 50.0% of net rentable area (NRA), vacated the property in 2018 and cash flow dropped off sharply as a result. The loan transferred to special servicing in November 2020 as a result of payment default and the special servicer is pursuing foreclosure. A court-appointed receiver is in place. The loan was hypothetically liquidated from the trust as part of the review, resulting in an implied loss severity of 30%.

At issuance, DBRS Morningstar shadow-rated the Courtyard King Kamehameha’s Kona Beach Hotel Leased Fee loan (Prospectus ID#6, 5.3% of the pool) investment grade. With this review, DBRS Morningstar confirms that the performance of the loan remains consistent with investment-grade loan characteristics.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X-A and X-B are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Marriott Philadelphia Downtown (12.5% of the pool)
-- Prospectus ID#17 – Holiday Inn Houston Intercontinental (2.7% of the pool)
-- Prospectus ID#33 – Arrowhead Professional Park (1.3% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found at dbrsmorningstar.com/about/methodologies. Links to the methodology referenced in this transaction are listed at the end of this press release. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating was disclosed to the master servicer and trustee, as representatives of the issuer, through the 17g-5 information provider, master servicer directly, and/or the depositor and amended following that disclosure before being assigned.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this transaction took place on March 4, 2021, when Classes E and F were downgraded and Negative trends were assigned to Classes D and E. All other rated classes were confirmed.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Joe Shmigelsky, Assistant Vice President, Credit Ratings
Rating Committee Chair: David Putro, Senior Vice President, Credit Ratings
Initial Rating Date: July 23, 2014

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS, Inc.
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Tel. +1 312 332-3429

North American CMBS Surveillance Methodology (March 26, 2021) https://www.dbrsmorningstar.com/research/375979

DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021) https://www.dbrsmorningstar.com/research/373262